Denbury Resources : Reports 2015 Fourth Quarter and Annual Results and Reports Year-End 2015 Proved Reserves

PLANO, Texas, Feb. 18, 2016 (GLOBE NEWSWIRE) -- Denbury Resources Inc. (NYSE:DNR) ('Denbury' or the 'Company') today announced an adjusted net loss (a non-GAAP measure) of $3 million for the fourth quarter of 2015, or $0.01 per diluted share. On a GAAP basis, the Company recorded a quarterly net loss of $885 million, or $2.56 per diluted share. The adjusted net loss for the fourth quarter of 2015 differs from the GAAP net loss primarily due to the exclusion of a $1.3 billion ($832 million after tax) write-down of oil and natural gas properties.

Sequential comparisons of selected quarterly financial items are shown in the following table:

Adjusted net income (loss) for the fourth quarter of 2015 decreased by $66 million on a sequential-quarter basis and $96 million when compared to the prior-year fourth quarter. The changes during both comparative periods were primarily due to lower oil revenues in the fourth quarter of 2015 as a result of the decline in realized oil prices and a reduction in receipt on settlements from the Company's derivative contracts. These decreases were partially offset by reductions in depletion, depreciation and amortization, general and administrative expenses, and taxes other than income in both periods, with the change versus the prior year fourth quarter also benefiting from a reduction in lease operating expenses. Adjusted cash flows from operations (a non-GAAP measure) for the fourth quarter of 2015 decreased $114 million on a sequential-quarter basis and $221 million from the prior-year fourth quarter, primarily as a result of lower revenues and hedging receipts, offset in part by a decrease in many of the Company's operating expenses.

ANNUAL RESULTS

Denbury's full-year 2015 adjusted net income was $131 million, or $0.37 per diluted share. On a GAAP basis, the Company recorded a full-year 2015 net loss of $4.4 billion, or $12.57 per diluted share, on annual revenues of $1.2 billion. Adjusted net income for the full-year 2015 differs from GAAP net income for the year primarily due to the exclusion of (1) a $4.9 billion ($3.1 billion after tax) write-down of oil and natural gas properties, (2) a $1.3 billion ($1.2 billion after tax) impairment of goodwill, and (3) a $364 million ($225 million after tax) loss on noncash fair value adjustments on commodity derivatives.

Year-over-year comparisons of selected annual financial items are shown in the following table:

Adjusted net income for full-year 2015 decreased by $234 million compared to 2014, primarily due to a decrease in oil revenues as a result of lower realized prices, partially offset by an increase in receipt on settlements from the Company's derivative contracts and reductions in all expense categories during 2015. Adjusted cash flows from operations during 2015 decreased $450 million from 2014, primarily as a result of lower revenues and hedging receipts, offset in part by a decrease in many of our cash expenses.

MANAGEMENT COMMENT

Phil Rykhoek, Denbury's President and CEO, commented, 'I am very pleased with our response to the continued commodity price downturn, driving significant year-over-year reductions in capital and lease operating expenditures, while taking important steps to improve our operational efficiency and positioning us well for the future. Maintaining our liquidity and financial flexibility is paramount in this oil price environment, and we continue to adjust our business to preserve our financial security and flexibility. During 2015, we generated over $390 million of excess cash flow after incurred development capital expenditures and dividends, part of which was due to our cost reduction efforts. We used $220 million of this cash flow to reduce our bank debt to $175 million at year-end, leaving us with well over a billion dollars of current liquidity. We also recently modified our bank loan agreement to enable us to comply with our bank debt financial maintenance covenants through the end of 2017, assuming current strip pricing. Lastly, we have recently entered into additional hedges for the second half of 2016 and first quarter of 2017 to further protect our liquidity. We now have hedges covering an average of 27,000 barrels of oil per day ('Bbls/d') in the third and fourth quarters at an average price of $40.66 per barrel. While we believe oil prices will ultimately improve, we are taking steps to ensure we have liquidity and resources to weather this storm.

'For 2016, we anticipate capital expenditures of approximately $200 million in 2016, a fifty-one percent reduction from 2015 capital expenditures of $407 million. Despite this significant reduction in capital spending for the second year in a row, our production declines should be minimized due to the long-lived low-decline profile of our asset base. We expect 2016 annual production will be approximately seven to twelve percent below 2015 levels, about sixty percent due to natural declines, with the other forty percent due to production shut-in for economic reasons. We continue to focus on reducing costs, increasing efficiency, and maximizing our cash flow in this environment, which means we will continue to evaluate shutting-in production that becomes uneconomic to produce at current prices.

'Denbury has many competitive advantages in this low-priced environment, including reduced bank debt, substantial liquidity, and low-decline assets. We continue to improve our operational efficiency, which will permanently enhance our future profitability, and to evaluate ways to strengthen our financial position. We are optimistic about the daily improvements occurring in our business, and look forward to promising days ahead.'

PRODUCTION

Denbury's total production for the fourth quarter of 2015 averaged 72,002 barrels of oil equivalent per day ('BOE/d'), including 41,177 Bbls/d from tertiary properties and 30,825 BOE/d from non-tertiary properties. Denbury's average production for the full-year 2015 was 72,861 BOE/d, down 2% from the prior year's level, including annual tertiary production of 41,602 Bbls/d and non-tertiary production of 31,259 BOE/d. Fourth quarter 2015 production was 95% oil, unchanged from the same prior-year period.

Total fourth quarter 2015 production increased 1% on a sequential-quarter basis and decreased 4% compared to production during the fourth quarter of 2014, and reflects the impact of just under 1,700 BOE/d attributable to wells shut-in at year-end as uneconomic to either produce or repair due to commodity prices. In addition to the production shut-in during 2015, in early 2016 the Company decided to shut-in incremental production for economic reasons which totaled approximately 900 BOE/d. Production during the fourth quarter of 2015 compared to the prior-year quarter reflects the impact of a contractual reversionary assignment in Delhi Field occurring on November 1, 2014, which decreased the Company's ownership interest in the field by approximately 25%. Fourth quarter 2015 tertiary oil production increased 1% on a sequential-quarter basis and decreased 2% compared to the fourth quarter of 2014. Non-tertiary oil-equivalent production during the fourth quarter of 2015 was up 1% on a sequential-quarter basis and down 7% from comparable production in the fourth quarter of 2014.

REVIEW OF FINANCIAL RESULTS

Oil and natural gas revenues, excluding the impact of derivative contracts, decreased 45% when comparing the fourth quarters of 2015 and 2014, due to a 41% decline in realized commodity prices and a 4% decline in production. Denbury's average realized oil price, excluding derivative contracts, was $40.41 per Bbl in the fourth quarter of 2015, compared to $45.74 per Bbl in the third quarter of 2015 and $70.80 per Bbl in the prior-year fourth quarter. Including derivative settlements, Denbury's average realized oil price was $52.67 per Bbl in the fourth quarter of 2015, compared to $71.32 per Bbl in the third quarter of 2015 and $86.67 per Bbl in the prior-year fourth quarter. The oil price realized relative to NYMEX oil prices (the Company's NYMEX oil price differential) in the fourth quarter of 2015 was $1.74 per Bbl below NYMEX prices, compared to a differential of $0.96 per Bbl below NYMEX in the third quarter of 2015 and $2.24 per Bbl below NYMEX in the prior-year fourth quarter.

The Company's total lease operating expenses in the fourth quarter of 2015 averaged $19.31 per BOE. Lease operating expenses during the third quarter of 2015 included insurance and other expense reimbursements recognized during the quarter totaling $14 million, or $2.09 per BOE. Excluding these special items, lease operating expenses per BOE during the fourth quarter of 2015 decreased 1% from the $19.43 per-BOE average in the third quarter of 2015, and decreased 15% from the $22.64 per-BOE average in the fourth quarter of 2014. These decreases were primarily due to the Company's cost reduction efforts throughout 2014 and 2015, as well as general market decreases in the prices of many of the components of these costs.

Taxes other than income, which includes ad valorem, production and franchise taxes, decreased $1 million sequentially and $9 million from the prior-year fourth quarter level. The levels of taxes other than income during most periods are generally aligned with fluctuations in oil and natural gas revenues.

General and administrative expenses were $27 million in the fourth quarter of 2015, decreasing $5 million, or 17%, sequentially and $8 million, or 22%, from levels of the same expenses in the prior-year fourth quarter. On an annual basis, general and administrative expenses decreased $14 million, or 9%, from 2014 to 2015. The decreases during both periods were due largely to an approximate 11% reduction in headcount between year-end 2014 and 2015, which resulted in lower employee compensation and related costs, as well as other cost reduction efforts.

Interest expense, before capitalized interest, was $47 million in the fourth quarter of 2015, compared to $50 million in the fourth quarter of 2014, due primarily to a $234 million decrease in average debt outstanding. Capitalized interest was $7 million during the fourth quarter of 2015, consistent with fourth quarter of 2014 levels, resulting in net interest expense of $40 million in the fourth quarter of 2015, compared to $43 million in the prior-year fourth quarter. Excess cash flow from operations was used to pay down borrowings on the Company's bank credit facility, which ended the fourth quarter of 2015 at $175 million, down from $395 million as of December 31, 2014.

As a result of the significant decrease in commodity pricing from fourth quarter of 2014 levels, the Company recognized pre-tax full cost pool ceiling test write-downs of $1.3 billion and $4.9 billion during the quarter and year ended December 31, 2015, respectively. In determining these write-downs, the Company is required to use the average of rolling first-day-of-the-month oil and natural gas prices for the preceding 12 months, after adjustments for market differentials by field. The preceding 12-month price averaged $48.11 per Bbl for crude oil and $2.45 per thousand cubic feet ('Mcf') for natural gas for the year ended December 31, 2015. Based on current oil prices, another full cost ceiling test write-down is likely in the first quarter of 2016.

Denbury's overall depletion, depreciation, and amortization ('DD&A') rate was $16.96 per BOE in the fourth quarter of 2015, compared to $22.81 per BOE in the prior-year fourth quarter. The decrease was primarily driven by a reduction in depletable costs associated with the Company's reserves base resulting from the full cost pool ceiling test write-downs recognized during the first nine months of 2015, partially offset by a reduction in proved oil and natural gas reserve volumes (discussed further below). Based on full cost pool ceiling test write-downs recognized during 2015, the DD&A rate for the first quarter of 2016 is expected to decrease further from the fourth quarter of 2015 rate.

Receipts on settlements of oil and natural gas derivative contracts were $78 million in the fourth quarter of 2015, compared to receipts of $161 million in the third quarter of 2015 and $104 million in the fourth quarter of 2014. On an annual basis, receipts on settlements of oil and natural gas derivative contracts totaled $512 million during 2015, resulting in an increase in average net realized prices of $19.24 per BOE.

Denbury's effective tax rate for the fourth quarter of 2015 was 36.5%, relatively consistent with the effective tax rate of 37.4% in the prior-year fourth quarter. The Company's estimated statutory rate remained at 38%, consistent with the prior-year fourth quarter. Denbury's effective tax rate for full-year 2015 was 30.7%, less than the Company's statutory rate, primarily as a result of the impairment of goodwill during the third quarter of 2015, whereby a significant portion of the $1.3 billion balance that was written off for financial reporting purposes did not have a related tax basis, and therefore no corresponding tax benefit was realized related to the impairment.

YEAR-END 2015 PROVED RESERVES

Denbury's total estimated proved oil and natural gas reserves at December 31, 2015 were 289 million barrels of oil equivalent ('MMBOE'), consisting of 282 million barrels of crude oil, condensate and natural gas liquids (together, 'liquids'), and 38 billion cubic feet (or 7 MMBOE) of natural gas. Reserves were 98% liquids and 79% proved developed, and 57% of those reserves were attributable to Denbury's CO tertiary operations. The net reduction in total proved reserves of 149 MMBOE during 2015 was the result of 126 MMBOE of revisions due to price changes, which is discussed further below, as well as 27 MMBOE of 2015 production, slightly offset by 4 MMBOE of other net upward revisions or additions.

The estimated discounted net present value of Denbury's proved reserves at December 31, 2015, before projected income taxes, using a 10% per annum discount rate ('PV-10 Value') (a non-GAAP measure), was $2.3 billion, compared to $8.7 billion at December 31, 2014. PV-10 Value and estimated proved reserves for 2015 were computed using first-day-of-the-month 12-month average prices of $50.28 per Bbl for oil (based on NYMEX prices) and $2.63 per million British thermal unit ('MMBtu') for natural gas (based on Henry Hub cash prices), adjusted for prices received at the field. Comparative prices for year-end 2014 were $94.99 per Bbl of oil and $4.30 per MMBtu for natural gas, adjusted for prices received at the field.

Proved oil and natural gas reserve quantities and PV-10 Valuespresented above reflect the significant decline in commodity prices between year-end 2015 and 2014, and include 368 Bcf (61 MMBOE) of natural gas reserves at Riley Ridge that were reclassified and are no longer considered proved reserves primarily due to lower natural gas prices and increased forecasted operating costs.

Denbury's estimated proved CO reserves at year-end 2015, on a gross or 8/8th's basis for operated fields, together with its overriding royalty interest in LaBarge Field in Wyoming, totaled 6.7 trillion cubic feet ('Tcf'), reduced from December 31, 2014 CO reserves of 8.7 Tcf. Of these total CO reserves, 5.5 Tcf are located in the Gulf Coast region and 1.2 Tcf in the Rocky Mountain region. During 2015, 1.8 Tcf of Riley Ridge CO reserves were reclassified and are no longer considered proved reserves primarily as a result of lower natural gas prices. In addition to these proved CO reserves, Denbury is currently purchasing CO from two industrial facilities in the Gulf Coast region and a gas processing facility in the Rocky Mountain region, all under long-term contractual agreements. Although there are no proved CO reserves associated with these long-term agreements, they currently supply approximately 15% of the CO Denbury is using for its tertiary operations.

2016 CAPITAL BUDGET AND ESTIMATED PRODUCTION

The Company's 2016 capital budget, excluding acquisitions and capitalized interest, will be approximately $200 million, which has been budgeted at less than half of 2015 levels to more closely match the Company's estimated cash flow from operations. At this spending level, the Company anticipates 2016 production of between 64,000 and 68,000 BOE/d, a decrease of approximately seven to twelve percent from 2015 levels, with approximately sixty percent of the decrease due to natural declines and the remainder due to production shut-in for economic reasons.

CONFERENCE CALL INFORMATION

Denbury management will host a conference call to review and discuss fourth quarter and full-year 2015 financial and operating results, as well as first quarter and full-year 2016 financial and operating guidance, today, Thursday, February 18, at 10:00 A.M. (Central). Additionally, Denbury has published presentation materials which will be referenced during the conference call. Individuals who would like to participate should dial 800.230.1096 or 612.332.0725 ten minutes before the scheduled start time. To access a live audio webcast of the conference call and accompanying slide presentation, please visit the investor relations section of the Company's website at www.denbury.com. The webcast will be archived on the website, and a telephonic replay will be accessible for one month after the call by dialing 800.475.6701 or 320.365.3844 and entering confirmation number 324020.

ANNUAL MEETING INFORMATION

Denbury's 2016 Annual Meeting of Stockholders will be held on Tuesday, May 24, 2016, at 8:00 A.M. (Central), at Denbury's corporate offices located at 5320 Legacy Drive, Plano, Texas. The record date for determination of shareholders entitled to vote at the annual meeting is the close of business on Tuesday, March 29, 2016.

Denbury is an independent oil and natural gas company with operations focused in two key operating areas: the Gulf Coast and Rocky Mountain regions. The Company's goal is to increase the value of its properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to CO enhanced oil recovery operations. For more information about Denbury, please visit www.denbury.com.

This press release, other than historical financial information, contains forward-looking statements that involve risks and uncertainties including estimated 2016 production and capital expenditures, estimated cash generated from operations in 2016, and other risks and uncertainties detailed in the Company's filings with the Securities and Exchange Commission, including Denbury's most recent report on Form 10-K. These risks and uncertainties are incorporated by this reference as though fully set forth herein. These statements are based on engineering, geological, financial and operating assumptions that management believes are reasonable based on currently available information; however, management's assumptions and the Company's future performance are both subject to a wide range of business risks, and there is no assurance that these goals and projections can or will be met. Actual results may vary materially. In addition, any forward-looking statements represent the Company's estimates only as of today and should not be relied upon as representing its estimates as of any future date. Denbury assumes no obligation to update its forward-looking statements.

FINANCIAL AND STATISTICAL DATA TABLES AND RECONCILIATION SCHEDULES

Following are unaudited financial highlights for the comparative three and twelve month periods ended December 31, 2015 and 2014 and the three month period ended September 30, 2015. All production volumes and dollars are expressed on a net revenue interest basis with gas volumes converted to equivalent barrels at 6:1.

NON-GAAP MEASURES

Adjusted net income (loss) is a non-GAAP measure provided as a supplement to present an alternative net income measure which excludes expense and income items (and their related tax effects) not directly related to the Company's ongoing operations. The excluded items for the periods presented are those which reflect the write-down of oil and natural gas properties, impairment of goodwill, noncash fair value adjustments on the Company's commodity derivative contracts, special items included in lease operating expenses, fair value adjustments regarding a contingent liability, the cost of early debt extinguishment, and impairment of assets. Management believes that adjusted net income (loss) may be helpful to investors, and is widely used by the investment community, while also being used by management, in evaluating the comparability of the Company's ongoing operational results and trends. Adjusted net income (loss) should not be considered in isolation or as a substitute for net income reported in accordance with GAAP, but rather to provide additional information useful in evaluating the Company's operational trends and performance.

Adjusted cash flow from operations is a non-GAAP measure that represents cash flows provided by operations before changes in assets and liabilities, as summarized from the Company's Consolidated Statements of Cash Flows. Adjusted cash flow from operations measures the cash flows earned or incurred from operating activities without regard to the collection or payment of associated receivables or payables. Management believes that it is important to consider this additional measure, along with cash flows from operations, as it believes the non-GAAP measure can often be a better way to discuss changes in operating trends in its business caused by changes in production, prices, operating costs and so forth, without regard to whether the earned or incurred item was collected or paid during that period.

Noncash fair value adjustments on commodity derivatives is a non-GAAP measure and is different from 'Commodity derivatives expense (income)' in the Consolidated Statements of Operations in that the noncash fair value adjustments on commodity derivatives represents only the net change between periods of the fair market values of open commodity derivative positions, and excludes the impact of settlements on commodity derivatives during the period. Management believes that noncash fair value adjustments on commodity derivatives is a useful supplemental disclosure to 'Commodity derivatives expense (income)' because the GAAP measure also includes settlements on commodity derivatives during the period; the non-GAAP measure is widely used within the industry and by securities analysts, banks and credit rating agencies in calculating EBITDA and in adjusting net income to present those measures on a comparative basis across companies, as well as to assess compliance with certain debt covenants.

PV-10 Value is a non-GAAP measure and is different than the Standardized Measure of Discounted Future Net Cash Flows ('Standardized Measure'), which measure at year-end 2015 will be presented in Denbury's upcoming Form 10-K, in that PV-10 Value is a pre-tax number, while the Standardized Measure includes the effect of estimated future income taxes. Denbury's 2015 and 2014 year-end estimated proved oil and natural gas reserves and proved CO reserves quantities were prepared by the independent reservoir engineering firm of DeGolyer and MacNaughton.

DENBURY CONTACTS:
Mark C. Allen, Senior Vice President and Chief Financial Officer, 972.673.2000
Ross M. Campbell, Manager of Investor Relations, 972.673.2825

Denbury Resources Inc. issued this content on 18 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 24 February 2016 11:07:10 UTC

Original Document: http://www.denbury.com/investor-relations/press-releases/press-release-details/2016/Denbury-Reports-2015-Fourth-Quarter-and-Annual-Results-and-Reports-Year-End-2015-Proved-Reserves/default.aspx